Retail space coming online Experts: Amazon's arrival could be first of many N.J. deals in e-commerce area

By Joshua Burd,
July 9, 2012 at 3:00 AM

As Amazon.com prepares to open two large distribution hubs in New Jersey, real estate insiders say the company's arrival could open the door for other online retailers, creating new demand for industrial space in the Garden State.

"If you look at what drives e-commerce, it's getting products to the customers in a shorter period of time," said David Knee, managing director for Jones Lang LaSalle's industrial practice in New Jersey. "We can deliver to a larger segment of the country overnight, so those that really want to do it, excel at it and lead in it are going to come here."

Knee, a member of Jones Lang LaSalle's retail and e-commerce distribution group, said those pressures could also extend to traditional retailers trying to bolster their sales on the Internet, through smartphones and by way of other channels. Nearly 80 percent of retailers say online sales have increased in the past five years, including some who report jumps of at least 25 percent, according to research cited by the firm.

Traditional retailers have been devoting more of their distribution space to online sales since around 2000, said Alex Klatskin, general partner at Forsgate Industrial Partners. Most the firm's tenants "are fulfilling some online obligation from their distribution centers," he said, but there is now a growing market in the state for facilities dedicated solely to online retail, especially as speed to customer becomes even more important.

Amazon's arrival in New Jersey would only help the market, Klatskin said. The Seattle-based Internet giant has agreed to open two 1.2 million-square-foot fulfillment centers under a deal that requires it to collect sales tax starting July 1, 2013. The company has opened similar facilities across the country in order to speed delivery times.

"Amazon has been the first one in the pool for a long time," said Klatskin, whose firm owns 10 million square feet of industrial buildings. "I think it's terrific for New Jersey. It validates the location from an e-commerce standpoint."

Companies have typically built online fulfillment centers in the Midwest or Pennsylvania, near airport hubs of carriers like UPS and FedEx, Klatskin said. But the rising demand for overnight and same-day delivery could make New Jersey and other large markets attractive to retailers across all channels.

Knee said national retailers are increasingly splitting their distribution space between their online channels and their brick-and-mortar needs. That's been the case with New Jersey-based companies like Toys R Us and Bed Bath & Beyond, which have announced plans for large online fulfillment centers in Nevada and Georgia, respectively.

While such facilities are not as common in New Jersey, some firms have built online hubs here. Century 21, the New York-based department store, operates a 100,000-square-foot e-commerce distribution center in Secaucus. The Garden State also is home to such centers for Barnes & Noble, Staples and Bed Bath & Beyond.

But Knee said facilities that are dedicated to e-commerce can use state-of-the-art handling equipment and technology. Smaller firms that can't make such a hefty investment will rely on third-party logistics providers, which also stand to benefit from tighter supply chains tied to online retailing.

Multichannel distribution has helped Capacity LLC, a North Brunswick-based warehousing and fulfillment firm, grow significantly since opening in 2000, said Thom Campbell, founder and chief strategy officer. He said the company has expanded in recent years from one facility in New Jersey to three, totaling nearly 500,000 square feet, thanks to growth in e-commerce, supplying retailers and other types of fulfillment. "Most clients who are an appropriate size fit for us — they're probably going to want one warehouse to do it all," Campbell said. "So we really see growth in all of the channels."

Experts said New Jersey's infrastructure and slate of economic development incentive programs will help make it more attractive as online retailers and third-party providers expand their footprints here. Also important is the state's talented labor pool, which is needed to staff such operations, said Ethné Swartz, a Fairleigh Dickinson University professor who teaches courses in business planning and e-commerce.

"Omni-channel retailing is becoming more important, and New Jersey can actually compete very well in that because of the environment that it provides," Swartz said.